Rising fuel prices to put more pressure on food prices

The anticipated fuel price hike in April is expected to put more pressure on food prices.

Thabile Nkunjana, the National Agricultural Marketing Council (NAMC) agricultural economist at the Markets and Economic Research Centre, said fuel prices were adjusted monthly, based on import parity prices.

“This means domestic fuel prices are set based on the cost of importing oil or fuel into the country,” he indicated.

“South Africa is a net-importer of oil, and international oil price rates have a direct impact on domestic prices. In recent weeks, a surge increase in international oil prices has been observed across the globe, especially from the North American region due to higher demand linked to extreme winter conditions,” noted Nkunjana.

Namc said significant increases in fuel prices were expected next month. That was attributed to an increase in the global oil prices combined with the weakening rand against the dollar.

A litre of petrol was estimated to increase by at least R1.16, to R17.48, and a litre of diesel by R0.92, to R15.04.

“This means that a litre of petrol would increase on average by 7 percent when compared to March 2021, and increase by 25 percent when compared to a year ago. A litre for diesel would also increase by 6 percent when compared to March 2021, and by 18 percent when compared to a year ago. Additionally, the increase of 15 percent for fuel levy and 11 percent for Road Accident Fund was likely to keep fuel prices elevated going forward,” said Nkunjana.

While motorists were at the forefront when fuel prices increased, the agricultural industry was highly responsive to fuel-price changes than other sectors for several reasons. While fuel was used directly in agricultural production, other factors of production represented a significant indirect use of fuel.

“When considering these factors, higher fuel prices increase the cost of production and transportation of food which is later transmitted to consumers, particularly (for) staple foods such as maize meal, wheat and its products such as bread, and oilseeds. The reason for this is because the majority of these commodities in South Africa are transported largely by road and thus sensitive to fuel-price changes,” he pointed out.

“Because food prices, both domestically and across the global market, remained elevated since November 2020, the poor and vulnerable consumers across South Africa are going to feel the fuel-price hikes,” he added.

Although the consumer price index data for March 2021 was yet to be published in order to make a conclusive decision about food prices, food prices were expected to remain high due to persistent load shedding, which was straining the country’s economic recovery, as well as the stagnant Covid-19 vaccine rollout.

Those factors and fuel hikes would probably keep food prices elevated during April.

The support grant provided by the state to the Covid-19 effected population assisted consumers, and it would be even more important in the coming weeks.

“A possible extension might be needed in the near-term to further assist vulnerable consumers,” said Nkunjana.

Earlier this month, FNB Agri-Business senior agricultural economist Paul Makube said that next month farmers would be preparing for the onset of the winter crop planting season.

“Farmers planted just over 751 000 hectares under wheat, barley, canola and oats and this is likely to increase for 2021, given the relatively favourable seasonal outlook. Although on-farm agricultural activity is currently at a seasonal low except for distribution of produce, harvesting of record summer grains is around the corner.

“Against this background, demand and consumption of fuel is expected to increase in the medium term and the recent uptrend in crude oil prices does not bode well for producers as production costs are likely to escalate.

“Brent crude oil prices recently breached the $60/bbl and peaked at a high of $65/bbl. in February 2021 which is 19 percent and 18 percent higher relative to the January 2021 and February 2020 averages respectively,” added Makube.

The FNB agribusiness unit said at the time that it hoped the rand strengthened to limit further fuel price increases. -BusinessReport